As Life Insurance Awareness Month approaches, we are reminded that one of life insurance’s primary functions is to replace lost income. But don’t stop with just life insurance, it’s a great time to assess all of your income-replacement insurance needs.
Let me explain. What is life insurance used for? Income and asset protection. What is disability insurance used for? Income and asset protection! When we truly understand life and disability insurance, it is easy to see that there is very little difference between the two in terms of function. In both cases the insured is no longer producing an income.
What’s different is the expenses. While there are typically final expenses related to a death, expenses from a disability are persistent and substantial, with the potential to last for years. According to the Council for Disability Awareness, the average duration of a long-term disability is two years.
People who have become disabled and are no longer able to work still need to purchase what they did before—they still need to eat, sleep and have shelter. In addition, they usually have ongoing medical issues that need to be treated. They may have special needs requiring special equipment or retrofitting of their home and auto.
So I might argue that becoming disabled is a great deal more serious than dying in terms of financial disruption.
As an advisor, when I am dealing with clients that only seem to be interested in life insurance, I simply ask them, “OK, I’d be happy to help you purchase a life insurance plan, but how will you continue to pay the premium if you become disabled? How will you continue to pay for your auto insurance, your health insurance and your homeowners insurance?” My hope is that these clients will begin to think about disability financial planning.
But let’s not take away from the great efforts that LIFE makes to promote the importance of life insurance during the campaign that starts in two weeks. Instead, I’d just remind you that both life insurance and disability insurance are important considerations for anyone who has financial responsibility for a family or a business.